This article provides general information only and does not constitute personal financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider whether it is appropriate for you and seek advice from a licensed financial adviser if necessary.

When you sell an investment for a profit, ASX shares, a rental property, units in an ETF, you trigger capital gains tax. Unlike the US or UK, Australia does not have separate capital gains rates. Instead, your gain is added to your ordinary income and taxed at your marginal rate. But if you have held the asset for at least 12 months, you can cut that tax bill in half with the 50% CGT discount. Understanding when you qualify and how much you will actually owe determines whether a sale makes sense.

How the 50% discount works

According to the Australian Taxation Office, the capital gains tax discount allows Australian residents to exclude 50% of a long-term capital gain from their assessable income (ATO, 2026). Your capital gain equals sale price (capital proceeds) minus purchase price (cost base) minus costs such as brokerage and fees. If you held the asset for more than 12 months and you are an Australian resident, you multiply the gain by 50% and include only that discounted amount in your assessable income. The other half is tax-free.

The 12-month rule is measured from the day after you acquire the asset to the day you dispose of it. For shares, that is the day after your trade settles to the day you sell. For property, it is from settlement to settlement. Selling one day early costs you the entire discount.

Your marginal tax rate then applies to the discounted gain. Foundational finance texts such as Principles of Finance emphasise that after-tax returns depend as much on tax treatment as on nominal gains. If you are in the 37% bracket (plus 2% Medicare levy, totalling 39%), a $10,000 capital gain becomes $5,000 assessable income, and you pay $1,950 in tax. Without the discount, you would pay $3,900. The discount saved you $1,950.

Capital losses offset gains before the discount applies. If you have a $10,000 gain and a $3,000 loss from another sale, your net gain is $7,000. Apply the 50% discount to that $7,000, and $3,500 goes into your assessable income. Unused losses carry forward indefinitely.

Read also: Australian Tax Return July 2026: How to Lodge via myTax and Maximise Your Refund

Worked example

In February 2025, you bought 500 shares of Commonwealth Bank (CBA) at $105 each, paying $20 brokerage. Total cost base: $52,520. In September 2026 (19 months later), you sell at $120 per share, paying $20 brokerage. Sale proceeds: $59,980.

Capital gain: $59,980 minus $52,520 equals $7,460. Because you held for more than 12 months, you apply the 50% discount: $7,460 multiplied by 50% equals $3,730. Only $3,730 is added to your assessable income.

If your marginal rate is 32.5% plus 2% Medicare levy (34.5% total), your tax on that gain is $3,730 multiplied by 34.5%, which equals $1,287. Without the discount, you would have paid $7,460 multiplied by 34.5%, or $2,574. The 12-month hold saved you $1,287.

If you had sold in January 2026, just 11 months after purchase, the full $7,460 would be taxable, costing you $2,574, even though you held for nearly a year.

Why timing matters

The CGT discount rewards patient investors, but it is easy to forfeit if you do not track purchase dates or understand how losses interact with the discount. Before you sell, confirm your holding period and estimate your tax using your actual marginal rate. If you are sitting on a gain and approaching the 12-month anniversary, selling one day early means paying tax on the full amount. Waiting one extra day can halve your tax bill. Conversely, if you are planning to sell during a high-income year, deferring the sale to a lower-income year (or spreading sales across years) can reduce your effective tax rate, as capital gains are taxed at your marginal rate in the year of disposal.